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TransUnion: Consumer credit delinquencies level off in July

Mortgage loans in financial hardship declined from 6.79% in June to 6.15% in July

For the first time since March, the total percentage of accounts in “financial hardship” for auto, credit card, mortgage and personal loans fell across the board in July, according to a consumer credit snapshot by TransUnion. In particular, the percentage of accounts with mortgage loans in financial hardship declined from 6.79% in June to 6.15% in the month of July.

The report defines accounts with deferred payments and forbearance programs as those in financial hardship and credits government stimulus and accommodation programs provided by lenders with helping the market withstand challenges in the near-term.

According to the report and TransUnions’s Financial Hardship Survey, 57% of Americans have been financially impacted by the COVID-19 pandemic – with impact highest among Hispanic (68%) and Black consumers (62%) compared to Asian (59%) and white consumers (54%).

The percentage of borrowers in 30-day delinquency and 60-day delinquency leveled off from the previous month at 1.81% and 1.08%, respectively.

“Overall, the consumer credit market has been performing quite well despite the obvious challenges brought on by the COVID-19 pandemic,” said Matt Komos, vice president of research and consulting at TransUnion. “It’s a reassuring sign that delinquency levels have remained relatively low – especially as the percentage of consumers in financial hardship status has started to decline.” 

As government assistance continues to spur debate across the country and moratoriums near or pass expiration dates, concerns about the ability to pay bills and loans is at its highest level to-date among impacted consumers at 77%.

Concerning those bills, 21% of consumers are worried about the ability to pay their mortgage, while 35% are concerned about making their rent payment. Among the respondents who said their household has been affected by the loss of their job (19%), 54% of those are renters.

“As more accounts come out of financial hardship status, lenders will be actively monitoring payment behaviors to gauge whether consumers can withstand these economic pressures and do so without government assistance or lender support. How consumers are able to manage debt levels and access to credit will be a key indication of economic recovery in the coming months,” Komos said.

While 51% of respondents said they are making normal payments on their mortgage loans, one-third of unemployed impacted consumers have an accommodation of some sort for a bill or loan.

Looking ahead, the most popular form of repayments among those with accommodations on loans is to create a payment plan to catch up gradually while making regular payments (32%), followed by extending accommodations another few months (26%).

“Following several quarters of hyper growth, the COVID-19 crisis has driven a significant slowdown in origination activity and a decrease in credit lines as lenders look to hedge risk,” said Paul Siegfried, senior vice president and credit card business leader at TransUnion.

“The additional liquidity afforded by deferral programs and government aid – combined with lower spend and larger payments – has allowed consumers to reduce card balances in the near-term and has largely kept delinquencies in check. However, with many of these programs set to expire at the end of the third quarter, we expect this will have an impact on future performance.”

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